If you're a banker who bought your estate with the millions you made from mortgage fraud, relax. The Justice Department isn't looking for you. But if you're an illegal immigrant who's working on that banker's estate, look out. The Department of Justice is ignoring your boss and devoting most of its resources to catching you.
And the Justice Department's "mortgage fraud" unit doesn't prosecute bankers. It protects them.
Joe Nocera of the New York Times contrasts the legal treatment that was given to one high-flying borrower with that received by Angelo Mozilo, CEO of the fraudulent lender Countrywide. But if stories like this one are bad, the numbers are even worse.
If you also take a qualitative look at some of the federal government's other well-publicized mortgage fraud efforts, like its "Stop Fraud" website, the picture becomes pretty stunning -- if not downright infuriating.
Justice by the Numbers
The TRAC group1 at Syracuse University gets information from the Justice Department under the Freedom of Information Act, then analyzes it and makes it available online as an interactive database. Here are some interesting findings:
More than half of all Federal filings (54%) were for immigration crimes. Then came drug cases, at 16%. Everything else? 30%.
There have been more than 2,000 prosecutions for mortgage fraud since the federal government began tracking these actions in the 2008 fiscal year. How many of these 2,000-plus prosecutions involved the bank executives and others who were responsible for a computerized, systematized foreclosure fraud spree by the big banks? None.
Remember: The sheer number of fraudulent foreclosure activity by banks was so great that an Attorney General Task Force representing all fifty states has been formed to handle it, yet there have been no federal prosecutions of bankers. By contrast, there were more than 1,000 prosecutions after the savings and loan scandal of the 1980's, which had a much smaller financial impact.
And here's another way to look at the government's immigrant fixation: There have been more felony prosecutions for immigration under the first two years of the Obama administration than there were during the entire Presidencies of President Clinton and the first President Bush -- a period of twelve years.
No wonder other forms of crime aren't being pursued rigorously enough.
Broken Dreams, Broken Trust
When it comes to Wall Street's crime rampage2, the only ramping up we've seen in this administration has been in its deployment of empty rhetoric -- the most cynical of which may have been its decision to call its mortgage fraud operation "Operation Broken Dreams." "Broken Dreams" targets borrower fraud, not bank fraud. And its sister program to investigate criminal bankers, "Operation Broken Trust," is part sham (the repackaging of programs that were already underway) and part distraction, targeting small-time players and not major banks. The "Broken Trust" PR campaign was such a transparent manipulation that the Columbia Journalism Review described it as a "financial fraud stunt."
It's not just that the Department of Justice won't investigate fraudulent bankers. It won't even prosecute cases that are dropped in its lap, like the AIG crimes that cried out for prosecution. (It's risky to suggest that there's overwhelming evidence that someone is a criminal -- but there's no harm in quoting that line from The Producers where the jury foreman says "We find the defendants incredibly guilty." Is there?)
After the Justice Department ignored Goldman Sachs' apparent criminality, the SEC seems to have stopped even bothering to refer cases to it for prosecution anymore. And maybe they gave up on GE Capital after GE's CEO was named to head the president's economic advisory council.
Two thousand prosecutions of people who ripped off banks, and no prosecutions for banks who ripped off people. The moral seems to be "don't mug a racketeer."
Look who's an expert all of a sudden
The Department of Justice's mortgage fraud "strike force" brought in the Mortgage Bankers Association as a partner. That's the same Mortgage Bankers Association that represents all the banks and institutions behind the banks' mortgage fraud crime wave. It's the same Mortgage Bankers Association that owned and operated MERS, an automated law-evasion machine that allowed its members to do an end run around laws requiring that the identity of a mortgage note's holder be filed locally. (That required the creation of a dummy "MERS Inc." corporation with less than 100 employees -- and roughly fifty thousand "executives"!)
This is also the same Mortgage Bankers Association whose CEO lectured underwater homeowners (many of them victims of bank fraud) on the immorality and social unacceptability of walking away from their mortgages -- shortly before the MBA walked away from its highly financed, multimillion dollar Washington, DC headquarters. (The building lost nearly $40 million in value in less than a year -- these guys sure know real estate. don't they?)
Using the Mortgage Bankers Association as the government's mortgage fraud resource is like asking the Lansky outfit to help clean up Vegas.
And get this: The DoJ's StopFraud.gov website has a page entitled "Protect Yourself From Fraud," but the word 'bank' never appears on it. There is, however, a referral to a "Consumer Help Desk" -- from the Mortgage Bankers Association! The caption for the link reads "MBA provides information and tips on identifying predatory lending and mortgage fraud and where to turn if you encounter it -- or think you encounter it."
Hmmm. "Oe think you encounter it..." I get it. If you've been defrauded by a bank they'll try to convince you that it's really all in your mind. (I've seen that movie a thousand times, haven't you? The doctor will be administering a sedative to Joan Crawford any minute now ...)
Wasted Money, Bad Management
Some of the mortgage crimes committed by non-bankers involve the worst kinds of predators, people who are victimizing desperate homeowners. But the government's law enforcement and prosecution money isn't being spent wisely. If you stop one small-time mortgage fraudster you've protected a few dozen families. But if you stop a fraudulent bank you've protected millions.
And if you send a banker to jail, the deterrent effect may protect tens of millions of people from future Wall Street crimes -- and possibly prevent another financial meltdown. But instead of investing in protecting the public from more bank crimes and protecting the economy for future crises, we're actually seeing cuts in non-immigration law enforcement. These reductions are especially striking because overall staffing is up under President Obama, with more federal prosecutors and law enforcement personnel on the payroll.
The bad choices extend to the IRS. Financial firms account for three-quarters of all corporate tax filings, and the financial sector has re-captured nearly 40% of all corporate profits. Nevertheless, as TRAC's staff pointed out, only 15% of the auditors in the Internal Revenue Service's corporate taxation unit have been assigned to review the tax filings for these corporations.
The kindest interpretation of all this is that we're seeing some very weak management of our national law enforcement operation.
The Deep End
But if the Obama administration's been a tragic disappointment, the Republicans have gone completely off the deep end, as the GOP Congress turns itself into a roving hit squad determined to kill any legislation that might inconvenience Wall Street. They just passed a bill killing homeowner assistance, with the help of 18 Democrats, and they're introducing other legislation to weaken the incomplete but urgently needed financial reforms passed last year.
And the State of Florida just completed a morally repugnant settlement with one of the eight law firms that turned themselves into mass-production perjury factories for the banks, generating "robo-signed" documents and breaking laws right and left. The punishment for running this criminal operation? A $2 million fine and no criminal charges. They don't even have to admit guilt.
(But then, what do you expect from a state whose new Governor ran a company that admitted to defrauding Medicare out of millions of dollars while he was the CEO?)
Scene of the Crime
U.S. homeowners have lost more than six trillion dollars in property value. That means banks either get paid for loans they should have known (and often did know) were going to go bad, or they can foreclose on the properties -- which lets them pocket the homeowner's equity and keep the house.
One home in four is underwater, eight million Americans have received foreclosure notices, one-tenth of the homes in this country are sitting vacant, home sales have plunged, more than half of existing home sales in California are distressed properties ...
... and as far as the Feds are concerned, nobody's guilty except borrowers.3
Rounding up the usual suspects
JPMorgan Chase just added $7.4 billion to its litigation reserve fund to cover possible fines and other losses for "enforcement actions, fines and other added costs stemming from probes of its mortgage- servicing procedures," as Bloomberg News put it.
And that's just one bank.
These figures and stories give us the paint-by-numbers picture of a systematic, organized bank mortgage racket that enriched the banks, robbed the public of its wealth and is now going unpunished. While it's true that federal prosecutors operate with a great deal of independence (as they should), the Department of Justice database tells the story of an equally systematic set of administration choices and priorities. They're making a terrible mistake. If the Attorney General Task Force follows their lead and gives the banks a financial slap on the wrist with no prosecutions, they'll be compounding the problem.
We need a Federal strike force that will really go after criminal bankers. I even have the perfect name for it: "Operation Broken Dreams."
Oh, wait. It's taken.
1 - The TRAC project is led by statistician Susan Long and former New York Times reporter David Burnham, and is dependent on contributions. While TRAC's numbers don't reflect all of the activity taking place at the federal level, both the number of mortgage fraud prosecutions and the trend lines should be reliable.
2 - For more information, see "Which of These Banks Was 2010's Most Shameless Corporate Outlaw"?
3 - There are a lot more of these staggering figures in this handy compilation.
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.
He can be reached at "email@example.com."
Website: Eskow and Associates